Alcoa's expansion of its Pinjarra alumina refinery has joined the growing list of big construction projects to suffer a blow-out in costs.
Alcoa's expansion of its Pinjarra alumina refinery has joined the growing list of big construction projects to suffer a blow-out in costs.
The company has told WA Business News that the capital cost of the project has jumped by 25 per cent, from $440 million to $550 million.
Alcoa Australia managing director Wayne Osborn said the Pinjarra upgrade, like most other resource projects in Western Australia, had experienced increased costs for skilled labour and materials.
Other big projects to have suffered a cost blow-out include BHP Billiton’s Ravensthorpe nickel mine, where costs have jumped 28 per cent, and Portman’s expansion of its Koolyanobbing iron ore mine (up 37 per cent).
Minara Resources said a pre-feasibility study into the expansion of its Murrin Murrin nickel project had found a 30 per cent increase in capital costs.
The big cost increases are not confined to WA. Wesfarmers has recently reported sharply higher costs at its Queensland coal operations.
The rise in costs reflects the unprecedented investment boom in the resources sector.
And there will be no respite to the cost pressures facing BHP Billiton and Rio Tinto, which recently committed to further multi-billion dollar expansions of their iron ore mining operations in the Pilbara.
This has led to speculation that other projects currently on the drawing boards, such as the planned $1.5 billion expansion of Alcoa’s Wagerup alumina refinery and the $1 billion expansion of the Worsley Alumina refinery, will be deferred.
Alcoa’s US chief executive, Alain Belda, told analysts in October it was the likely the Wagerup expansion would be deferred.
“The Wagerup expansion is going to basically be done when this construction boom in Australia goes through and prices get back to normal,” Mr Belda said.
He contrasted the tight labour supply in WA with the situation in Iceland, where Alcoa has about 10,000 people working on major projects and has been able to bring in workers from China, Mongolia and Poland at “very competitive compensation”.
“Australia does not allow us to do that. And therefore it is not the right time to be building a refinery in Australia,” Mr Belda said.
Mr Osborn said Alcoa would continue with the environmental approval process for the Wagerup expansion.
Meanwhile, Alcoa has dismissed engineering industry speculation that design flaws had contributed to the higher costs at Pinjarra, stating that the expansion had proceeded in line with the original plan.
Mr Osborn said the higher costs at Pinjarra had required innovative re-profiling of work programs to maintain schedules.
“Rather than having a short peak period of high activity and jobs, we changed over to a flatter, longer period which has tailored the work to the people available,” he said.
Mr Osborn said he expected the project to be completed in the first quarter of 2006, a little later than the original target of late 2005.
The efficiency upgrade at Pinjarra is proceeding in tandem with the construction of two co-generation power stations at the refinery.
Alinta is close to completing construction of the first co-gen plant, several months behind schedule, and is proceeding with construction of the second co-gen plant.
Alinta has also announced that it will adopt a new contracting and construction strategy for its planned co-generation power station at Wagerup.
Alinta Power Services general manager Jim Hennessy said moving to an engineering, procurement and construction management structure would provide greater control and flexibility than the engineering, procurement and construction approach employed at Pinjarra.